Revolution Beauty “a remarkably resilient performance” says Zeus

Revolution Beauty Group plc (LON:REVB) has announced full year numbers broadly in line with our forecasts, driven by a record Q4. This is a commendable performance that highlights the resilience of the Group’s model in the face of significant inflationary pressures and pandemic related volatility over the past 12 months.

¨ FY22 trading update: FY22 revenue of £194m +42% YOY (versus the 12 months to February 2021) with EBITDA c.£22.0m, +73% YOY. Today’s trading update confirms a record Q4 for the Group, with revenue growth accelerating to 44% in H2 FY22, versus the 38.8% growth reported in H1 FY22 and the 41% growth delivered over the peak Christmas trading period. Sales in the final quarter have benefitted from global retailer expansion including Boots in the UK and Walgreens in the US. Retail store sales rebounded strongly in FY22, as lockdown restrictions eased. In the UK, retail store sales were +85% YOY, supported by post-pandemic recovery in footfall, and the successful roll out of Revolution in Boots. The US now represents the Group’s largest regional market for retail stores at c.20% of revenue. The US grew an impressive 27% YOY against tough prior year comparatives that included the roll out of the Group’s brands across Target. ROW stores also rebounded strongly in FY22, with sales +79% YOY, contributing 35% of the Group’s total sales and reflecting the truly global nature of Revolution’s business model. Digital platforms (including direct to consumer web sales and ecommerce wholesale partnerships) contributed c.29% of Group revenue in FY22. The Group’s DTC strategy remains core to its proposition, enabling the Group to ‘test and learn’ new trends and new products. DTC sales in the USA and Australia continue to benefit from the roll out of localised fulfilment. The Group had negligible exposure to Russia in FY22, with sales to a regional distributor in this market now halted.

¨ Forecasts: We tweak our FY22E forecasts to reflects today’s announcement. FY22E revenue of £194.0m and EBITDA of £22.0m are 2.0% and 2.2% lower versus prior estimates, which we see as a remarkably resilient performance in the face of the well flagged inflationary pressures and pandemic related volatility. We now forecast FY22E year-end net debt of £5.0m (versus £12.0m net cash previously estimated) driven by an increase in year- end debtors, reflecting the record Q4 performance and phasing of distribution expansion in January and February, which will unwind in FY23E. Our FY23E and FY24E forecasts are unchanged and will be revisited alongside full year results later in the summer. FY23E forecast revenue growth of 21.9% YOY looks increasingly comfortable in the context of the Group’s growing distribution base both in physical retail and via ecommerce wholesale partners, the significant opportunity for further category expansion and potential contribution from the BH Cosmetics brand, acquired in February, which generated $55.8m in 2019, prior to COVID disruption.

¨ Investment case: Revolution Beauty operates in the highly resilient and structurally growing mass beauty market. It has established global scale and brand recognition, partnering with leading retailers across its international markets. This significant addressable market opportunity, combined with further growth in distribution, product categories and brands (including BH Cosmetics acquisition) underpin our future growth assumptions. Trading on an FY23E PE of 27.2x falling to 21.0x, Revolution trades at a discount to peers including L’Oreal (32.0x) and Elf Beauty (31.1x). Our DCF implies upside of 66% or 194p per share.

Summary financials

Market Cap£360.8m
Shares in issue309.7m
12m Trading Range96.8p – 171p
Free floatc.30%

Financial forecasts

Yr end Feb (£’m)2022E2023E2024E
% growth4221.915.1
Adj EBITDA2230.537
Adj PBT9.916.823.3
Adj PAT813.617.6
EPS (dil)
Net cash-518.128
EV/ Sales1.91.41.2
EV/ EBITDA16.611.29

Source: Audited Accounts and Zeus estimates

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